U.S. retail sales unexpectedly declined in July, marking the first monthly drop in more than a year as the lift from earlier government tax refunds faded and shoppers pulled back on discretionary purchases.
Retail sales slipped 0.6% last month, the largest decline since May 2025, according to Commerce Department data released Friday. The figure followed a revised 0.2% gain the previous month and reversed a stretch of steady growth that had lasted well over a year.
Spending had surged notably in April and May as Americans dipped into their tax refunds, giving retailers a temporary boost. With that windfall now spent, consumers reined in outlays across several categories, including consumer electronics and online retailers.
Excluding gas stations and auto dealers, retail sales fell a more modest 0.2%, indicating that the headline decline was partly driven by volatile categories rather than a broad collapse in demand.
Gasoline prices offered a mixed picture. Prices at the pump edged up to $4.08 per gallon on Friday, according to motor club AAA, compared with $3.85 a month earlier. Lower oil prices during much of July nonetheless weighed on the dollar value of fuel purchases.
Online retailers also saw softer activity, reflecting a natural pullback after summer promotional events that had pulled forward consumer spending into earlier weeks. The pattern echoes previous cycles in which major online sales bonanzas are followed by a period of reduced digital purchasing.
The report captures only a portion of household spending and excludes major categories such as travel, hotel stays and other services. Among the services tracked, restaurants stood out as the lone bright spot, registering a 0.5% increase.
The softer reading arrives as retailers navigate an uncertain consumer environment. Earlier this year, several major chains flagged caution, with Target trimming its full-year sales outlook amid weaker discretionary demand and tariff-related pressures.
Despite the July dip, the underlying data suggests consumer spending remains resilient rather than deteriorating. Wage gains and a steady labor market have continued to support household budgets, even as the temporary refund-driven surge unwinds.
Economists will watch upcoming months closely to determine whether July’s decline reflects a one-off normalization or the start of a more cautious spending trend as households absorb higher prices and adjust to shifting economic conditions.